New indirect sales tax laws drive compliance burden: new or increased taxes have an obvious impact on consumers, but the impact these changes have on businesses is often overlooked.

Author:Yrjanson, Carla
Position:Tax
 
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According to the United States Census Bureau, general sales tax, which is ranked as the second largest category of state tax revenue, rose 5.2 percent in the first quarter of 2013 to $76.1 billion from $72.4 billion in the first quarter of 2012. As of this writing, the Census Bureau has yet to release the Q2 2013 numbers, but sales tax revenue is likely on the rise with the average state sales tax at 5.60 percent, up slightly from 5.48 percent in Q1 2012, based on the most recent Thomson Reuters ONESOURCE Indirect Tax Quarterly Sales Tax and VAT Rate Report.

Despite increases in sales tax rates, most government agencies--at the state, local and national level--are still facing deep economic troubles. For example, U.S. state revenues are about 5 percent below where they were five years earlier, after adjusting for inflation.

As evident by the numbers, the federal government is still in desperate times. In regard to indirect tax, to address budget shortfalls, government is not only changing tax codes, but also implementing new, unprecedented tax laws.

As an example, in the U.S., businesses had to comply with more than 580 indirect tax rate changes in 2012; outside of the U.S. there were more than 2,000 tax rate and product taxability changes. This year is on track to be equally cumbersome, with more than 586 U.S. and global indirect tax changes for Q1-Q2 2013 alone.

New unprecedented tax laws--such as the Marketplace Fairness Act (see sidebar on page 48), Medical Excise Tax and Massachusetts Computer Software Sales Tax--have either been enacted into law or are currently being voted on.

New or increased taxes have an obvious impact on consumers, but the impact these changes have on businesses is often overlooked. Regardless of whether there is a tax increase, decrease or a new tax all together, each change represents a significant operational and cash flow outlay for businesses that are burdened with implementing those changes.

As governments at all levels continue to rely on indirect tax to address its budget shortfalls, the cost of compliance will keep rising, along with the risk for more audits. With such a dynamic landscape, it's not surprising that, as noted by PwC, the average business will devote 125 hours to GSTNAT/indirect tax compliance [general sales tax/value added tax], with this number rising significantly the more complex the business.

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